Question

Which are the two different sources of credit which source of credit should be expanded and why?

Answer 1

The reasons for expanding credit in India are
(i) High cost of borrowing leads to a major share of earnings going into payment of interest on the loan.
(ii) Sometimes the higher interest rate leads to the requirement to pay more than the earnings, thus falling into a debt-trap.
(iii) Borrowers falling into debt-traps discourage more people from borrowing, thus reducing development of the country.
(iv)Banks and cooperative societies lending to more borrowers will lead to higher incomes and many people could then borrow cheaply for a variety of needs like growing crops, set-up business or small-scale industries.

Answer 2

Answer:

we need to expand formal sources of credit in india because:-

(1) There is no organisation which supervises the credit activities of lenders in the informal sector.

(2) There is no one to stop them from using unfair means to get their money back.

(3) Formal sources of credit are less risky and they charge less rate of interest .

(4) The RBI supervises the functioning of formal sourcesif loans.